45% Of Student Loans Will Never Be Paid Back, Risks Tuition Fee Benefits

A Government prediction that around 45% of student loans will never be paid back has raised concerns about the benefits of raising tuition fees.

The coalition originally estimated that 28% of university graduates would not earn enough to repay their student debt.

However, Universities Minister Mr Willetts says the Government's current assessment is that around 45% will not be paid back.

This figure is perilously close to the 48.6% threshold at which experts say the country will begin to lose more money than it gains under the new system.

If this happens, the benefits of raising tuition fees will effectively be cancelled out.

Students march through Westminster as they protest against the rising costs of further education

The new figure was revealed in response to a parliamentary question posed by shadow universities minister Liam Byrne this week.

A major overhaul of higher education funding saw tuition fees at English universities trebled to a maximum of £9,000 in 2012.

Students can get a loan from the Government to cover their fees, with the money paid back once they have graduated and are earning at least £21,000 a year. The debt is written off after 30 years.

Ministers had originally suggested in 2010 when the reforms were proposed that around 28% of loans taken out under the new system would never be repaid.

This estimate has since been revised, and in response to a parliamentary question posed by shadow universities minister
Liam Byrne this week, Mr Willetts said the Government's current assessment is that around 45% will not be paid back.

In his response to Mr Byrne, Mr Willetts said: "By its nature an estimate is subject to change as it is highly dependent on macroeconomic circumstances, and the growth of graduate earnings over the next 30 years."

The Government "got its maths wrong" and overestimated the amount of money that it will recoup from students taking out loans to pay new higher tuition fees, a former adviser to the Universities Minister has said.

Ministers need to take action to address the "big funding gap" that is emerging in the system, according to Nick Hillman.

Mr Hillman, who worked for David Willetts when the Government was reforming tuition fees, said that the £21,000 repayment threshold - the point at which graduates must start paying back their loan - had turned out to be much higher than expected.

Example of student loan repayment letter

In an interview with the Guardian Mr Hillman, who is now director of the Higher Education Policy Institute (HEPI) think tank, said there was no denying "the Government has got it wrong and therefore there is a big funding gap and something has to be done about it".

"The thing that hasn't really entered the debate yet ... is now we know how big the shortfall is, what do you do about it?," he said.

"How much would you need to change the loan system to actually solve the problem? I'm not defending the Government. The Government has got the maths wrong, plus the economy has changed. The £21,000 repayment threshold is in real terms much higher than the Government expected."

He told the Guardian that possible solutions to the problem include imposing limits on the amount a student can borrow, or freezing the repayment threshold so that students begin paying their loans back quicker.

HEPI, under former director Bahram Bekhradnia, was the first to raise concerns about the repayment system in a report published in 2012.

It said that the Government has ''badly underestimated'' the cost to the public purse of raising university tuition fees to a maximum of £9,000 a year.

The study said the Government's assessment about the net cost of the loans it will give to students to cover their fees (the RAB cost) depended on "highly uncertain and unrealistic assumptions".

A Business Department spokeswoman said in response: "The principal aim of our reforms was to put higher education on a sustainable footing for the long-term. Our universities are now well-funded and this is driving up the quality of the student experience and helping to stimulate economic growth. We are also protecting those on lower incomes and those from poorer backgrounds are applying in record numbers.

"The RAB charge is an estimate based on a prediction of economic circumstances some 35 years in the future. Estimates can and will continue to change."